Social Studies - 2018-19

CE.12d - Circular Flow

The student will apply social science skills to understand the United States economy by

d) explaining the circular flow that shows how consumers (households), businesses (producers), and markets interact;

Adopted: 2015



Resources, goods and services, and money flow continuously among households, businesses, and markets in the United States economy.


The circular flow diagram is a way of visualizing and categorizing activity within an economy. Goods, services, and resources flow in one direction. Money flows in the opposite direction.

Economic flow (circular flow)

 Households own the resources used in production, sell the resources, and use the income to purchase products.

 Businesses buy resources; make products that are sold to individuals, other businesses, and the government; and use the profits to buy more resources.

 When households and businesses spend money, the income is used by households to purchase goods and services and by businesses to purchase resources.

 Governments use tax revenue from households and businesses to provide public goods and services.


Updated: May 16, 2018